Douglass North on “Understanding the Process of Economic Change”

Economic change is a process, and in this book I shall describe the nature of that process. In contrast to Darwinian evolutionary theory, the key to human evolutionary change is the intentionality of the players. The selection mechanisms in Darwinian evolutionary theory are not informed by beliefs about the eventual consequences. In contrast, human evolution is guided by the perceptions of the players; choices — decisions — are made in the light of those perceptions with the intent of producing outcomes downstream that will reduce uncertainty of the organizations — political, economic, and social — in pursuit of their goals. Economic change, therefore, is for the most part a deliberate process shaped by the perceptions of the actors about the consequences of their actions. The perceptions comes from beliefs of the players — the theories they have about the consequences of their actions — beliefs that are typically blended with their preferences.

From Understanding the Process of Economic Change, Princeton University Press, 2005.

Make No Little Plans

Make no little plans. They have no magic to stir men’s blood and probably themselves will not be realized. Make big plans; aim high in hope and work, remembering that a noble, logical diagram once recorded will never die, but long after we are gone will be a living thing, asserting itself with ever-growing insistency. Remember that our sons and grandsons are going to do things that would stagger us. Let your watchword be order and your beacon beauty. Think big.

Daniel Burnham, Chicago architect. (1864-1912)

Sequencing — Part 2

A few days ago, I wrote about sequencing of interventions for development. Now it is time to ponder the question of leapfrogging, a buzz word very much favored by some who write about emerging economies. For instance, there is the claim that India can leapfrog into a service economy from an agricultural economy without the intermediate stage of a manufacturing economy. I have delved into this matter in the development path of economies and agriculture and development. My position is that India cannot leapfrog from an agricultural to a service economy: it has to have a robust manufacturing sector as well.

Leapfrogging is possible but mostly it is restricted to technologies. For instance, areas of India which had absolutely no telecommunications infrastructure don’t have to go through the sequence of first getting telegraph and then wired telephones and then move on to wireless: they can leapfrog the now obsolete technologies and go directly to wireless. It is always possible – indeed necessary – to leapfrog technologies because advanced technologies are cheaper.

Advances in technologies provide the same functionality at a lower cost and reduced complexity for the user. Consider the VCR. When it was first introduced, they used to have little tuning wheels which needed to be fiddled with before they worked. Later models became plug-and-play.

Unlike technology, you cannot leapfrog the various stages of development. A century ago, to be educated, one had to be literate and numerate. Same holds for today even though we have digital gizmos and computers. Indeed, to be able to effectively use the products of high-technology, literacy is an absolute necessity. Functional skills required for using high-tech all involve the ability to read and reason. I grant that illiterate idiots can use a cell phone, but that is not what I would call the effective use of high technology.

The so-called “digital divide” cannot be bridged by simply installing lots of PCs in areas where they don’t exist and connecting them up to the internet. If the people are unable to use them, they serve no purpose other than to enrich the peddlers of hardware and software. Furthermore, there is the opportunity cost of spending limited resources on useless high-tech gizmos.

You cannot leapfrog development. It cannot be done at an individual level. And it cannot be done at a societal level. Although development paths may differ, the sequencing within a path cannot be radically altered because there are strict dependencies. Basic functional literacy is a pre-requisite to pretty much anything that one does. The use of high-tech depends on literacy and therefore if the population is illiterate, even gifting them with free hardware will not make a difference. The pre-condition for bridging the digital divide is therefore the bridging of the literacy divide.

Of course, there are those who will argue that high tech be used for bridging the literacy divide. In a conference that I had attended some time ago, the question “Can ICTs be useful for rural and remote areas of developing countries, especially the poverty-stricken regions?” was seriously asked. I wrote:

We need to examine that question for a moment. At one level of analysis, it is hard to not answer that question in the affirmative. At another level, it is a meaningless question. Merely because it is syntactically correct does not imply that it has any content. Consider the question:

Can magnetic levitation superfast monorail transportation systems be useful for rural and remote areas of developing countries, especially the poverty-stricken regions?

Clearly, yes. Not just magnetic levitation superfast monorail transportation systems, but an almost unending variety of things would be useful for the development of poverty-stricken remote areas. Not merely for those areas, all of those unending variety of things would be useful for the development of not so remote and not so poverty-stricken areas of any developing country. Thus that question is actually content-free.

I think that the fundamental problem of development is one of sequencing, of prioritizing. It is the same question that one has to ask in one’s own personal development: what is the important next step?

Alexis de Tocqueville: Distinguishing Between Democracy and Liberty

Alexis de Tocqueville said that “the only passions I have are love of liberty and human dignity.” This is the bicentennial year of his birth. He was only 30 years old when his Democracy in America was published in 1835.

Gary Galles’s article Tocqueville on Liberty in America at the Mises Institute is worth reading. “The bicentennial of Alexis Charles Henri Maurice Clerel, the Comte de Tocqueville, is an apt time to revisit the insights on liberty in Democracy in America.That is especially true today, since he recognized that liberty and democracy are not the same thing, despite the common modern confusion between them. Even more crucial, he recognized that democracy can be the enemy of liberty, and that of the two, liberty is far more important.”

Here, for the record, are a few selected de Tocqueville quotes from Galles’s article. People often talk very loudly about democracy. I wonder how many have considered what democracy actually means and what they mean by democracy. Indians, especially, need to think a bit about democracy and liberty.

• The Revolution of the United States was the result of a mature and reflecting preference for freedom, and not of a vague or ill-defined craving for independence.

• It profits me but little, after all, that a vigilant authority always protects the tranquility of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life . . .

• The great end of justice is to substitute the notion of right for that of violence and to place a legal barrier between the government and the use of physical force.

• . . . the main evil of the present democratic institutions of the Unites States does not arise, as is often asserted . . . from their weakness, but from their irresistible strength. I am not so much alarmed at the excessive liberty which reigns in that country as at the inadequate securities which one finds there against tyranny.

• The only means of preventing men from degrading themselves is to invest no one with that unlimited authority which is the sure method of debasing them.
• If the absolute power of a majority were to be substituted by democratic nations . . .[men] would simply have discovered a new physiognomy of servitude . . . when I feel the hand of power lie heavy on my brow, I care but little to know who oppresses me; and I am not the more disposed to pass beneath the yoke because it is held out to me by the arms of a million men.

• The taste which men have for liberty and that which they feel for equality are, in fact, two different things . . . among democratic nations they are two unequal things.

• . . . democratic communities have a natural taste for freedom; left to themselves, they will seek it, cherish it, and view any privation of it with regret. But for equality their passion is ardent, insatiable, incessant, invincible; they call for equality in freedom; and if they cannot obtain that, they still call for equality in slavery.

• . . . public tranquility is a great good, but . . . all nations have been enslaved by being kept in good order.

• . . . the despotism of faction is not less to be dreaded than the despotism of an individual.

• . . . the species of oppression by which democratic nations are menaced is unlike anything that ever before existed in the world. . . . Above this race of men stands an immense and tutelary power, which takes upon itself alone to secure their gratifications and to watch over their fate. That power is absolute, minute, regular, provident, and mild. It would be like the authority of a parent if, like that authority, its object was to prepare men for manhood; but it seeks, on the contrary, to keep them in perpetual childhood. . . . For their happiness such a government willingly labors, but it chooses to be the sole agent and the only arbiter of that happiness; it provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry, regulates the descent of poverty and subdivides their inheritances: what remains, but to spare them all the care of thinking and all the trouble of living?

• After having thus successively taken each member of the community in its powerful grasp and fashioned him at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd.

• . . . the people shake off their state of dependence just long enough to select their master and then relapse into it again . . . they think they have done enough for the protection of individual freedom when they have surrendered it to the power of the nation at large. This does not satisfy me: the nature of him I am to obey signifies less to me than the fact of extorted obedience.

Blegging, anyone?

Tim Worstall requested this one. He wrote

An advertiser has got their pricing seriously wrong, offering 10 pounds for each person that signs up for their free demo (no credit cards, no payment, no software download, seriously, just name, address, phone number, confirm with emailed log-in). It’s the Easter weekend so they won’t approve anyone else to run the ad, and they’ll almost certainly change their prices come Tuesday. It is also my birthday on Sunday. This sounds like a perfect opportunity to move money from their account to mine, and getting the word out to as many people as possible seems to be the best way to do it.

Always good to help out a friend. Please see his post Urgent Blegging.

The Care and Feeding of the Permanent Arms Industry — Part 2

There must be a cheaper method of ensuring security for India. I am referring to the talk that is going around about the US selling F-16 fighter planes to India. I don’t know how much they cost exactly but I guess that they go for about a $100 million a piece. India may end up getting about 125 of them from the US for a whopping $10 billion. There is much rejoicing going on in some circles at that prospect. For me, that is one of the most depressing news going around.
Continue reading

As India Develops

Rajesh Jain’s blog, Emergic, is an extended memory of all kinds of emerging technologies and markets. His “Tech Talks” summarize his learnings and ruminations on various subjects. I use his blog to better understand what is going on in various areas. And paradoxically I use his blog to better understand what I wrote myself because he is able to edit the stuff that I write and put things into context.
So I recently visited a category on his blog called As India Develops. I think it is worth bookmarking because it is something that one cannot read in one go. I should disclose that the category has extended excerpts from my writings and therefore this could be construed as shameless self-promotion.


“Forgive him Theodotus: he is a barbarian and thinks that the customs of his tribe and island are the laws of nature”

Caesar and Cleopatra, George Bernard Shaw

In a sense, we are all barbarians believing that our personal experiences are universally applicable. This tendency is all too evident in those who intervene, often with the most noble of motives, in economic development. It appears to me that this unfortunate barbarism approaches its extreme in the context of information and communications technologies (ICT) and development of poor rural economies. The thinking goes something like this: PCs and internet are wonderfully powerful inventions which empower those who use them; the poor don’t have access to PCs and internet; that is why they are poor; therefore, if they were given PCs and internet, the poor in rural areas will become rich.

So what is wrong with the above reasoning? Lots, actually. First, there is the matter of sequencing. Then, there is the conflating of causes and effects. (For more on this problem, see myths, misconceptions, etc: you may have to scroll down a bit.) Finally, there is the problem of limited resources. All sorts of grand plans fail when one does not pay attention to sequencing. It may be terribly trivial to say that one has to build the foundation of a building before building the 10th floor, but often people do attempt something analogous when approaching development challenges.

Examples of mis-sequencing are distressingly common. For a very poor illiterate population, the foundational step has to be making them literate as fast as possible before resources are spent on making high-technology equipment available to them. Then why do they take the cart-before-the-horse approach? Perhaps because the advocates of hi-tech devices themselves have a personal agenda or for commercial gain. Or perhaps because they forget that they themselves were literate before they started using high tech tools effectively. Or perhaps because it is easier to just buy a lot of hardware and stick them into rural kiosks than to figure out the much harder problem of how to effectively make the population literate.

The undeniable fact is that literacy is the basis for all development. Literacy (and numeracy) is absolutely positively acutely necessary. You have to have a literate population for there to be any hope of any advancement—social, economic, physical, whatever. Given a literate population, even in the absence of new-fangled high tech equipment, you can have wonderful outcomes; absent a literate population, no amount of high-tech gizmos will amount to a hill of beans.

Every notable invention, every innovation, every advancement made by humans have been made by humans who have been literate and they did it without PCs and internet. That statement is obviously true until about 30 years ago. PCs and the internet have arguably enhanced the power of humans to innovate more rapidly but the preconditions are that of literacy and resources to afford those tools. The lesson for the development of India is straightforward. If you want the rural populations to benefit from the use of high technology, then you have to make them literate first. If you don’t make them literate, then you can forget about bridging the so-called “digital divide”.
(See Everybody Loves a Good Digital Divide.)

Here is my prescription: First, make the people literate. How? See my modest proposal to make India literate within a few years.) Second, figure out which of the problems admit a least cost solution which involves PCs and internet. Finally invest in PCs and internet.

{To be continued.}